You are a risk analyst in a public pension fund. You have been asked to calculate the appropriate amount of futures to hedge the bond below. What is your calculation? Bond Face $ 30,000,000 Term 10 years Coupon 2.50% annual coupon YTM 3% Hedge Futures contract 10 year T-Note Denomination $ 100,000 Deliverable Notes: Note 1 Term 10 years 2.20% payable annually 2.8% p.a. Coupon YTM Note 2 Term 10 years 2.10% payable semi annually 2.8% р.а. Coupon YTM Note 3 Term 10 years Coupon 2.00% payable semi annually YTM 2.7% p.a.
You are a risk analyst in a public pension fund. You have been asked to calculate the appropriate amount of futures to hedge the bond below. What is your calculation?
Introduction:
Bond:
The issuing bank owes the lenders a bond, which is a type of debt. Municipal bonds and corporate bonds are two most frequent types of bonds. Bonds can be purchased through mutual funds or private investing, in which a person lends money to a firm or the government. The bond is a financial asset in which the issuer sells junk bonds and is required to pay interest (the coupon) and repay the bond at a later period (the maturity date), depending on the terms of the bond. Frequently, interest is paid on a regular basis (semiannual, annual, sometimes monthly).
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
